International financial institutions conducting ‘significant transactions’ with the ten sanctioned individuals could face secondary sanctions.
The US Department of State has released the ‘Hong Kong Autonomy Act Report‘ to Congress, naming ten individuals whose actions it says “have undermined freedoms of assembly, speech, press, or the rule of law, or whose actions have reduced the high degree of autonomy of Hong Kong.”
The Hong Kong Autonomy Act, signed into law by President Donald Trump in July, required the State Department to within 90 days name individuals deemed responsible for China not meeting its obligations under the Sino-British Joint Declaration or Hong Kong’s Basic Law.
The ten individuals – including Hong Kong’s Chief Executive Carrie Lam – were the same individuals sanctioned under Executive Order 13936 in August in response to the imposition of a new national security law in Hong Kong, which criminalises secession, terrorism, subversion and collusion with foreign powers.
The release of the report to Congress makes the individuals liable for sanctions, while also marking a formal warning to international financial institutions that they could face secondary sanctions for doing business with the ten individuals.
The State Department said it would identify the financial institutions that conduct “significant transactions” with the sanctioned individuals within 60 days.
If named in the next report, the financial institutions will have 30 days from the report’s publication to wind down the business or face “mandatory secondary sanctions” under the Hong Kong Autonomy Act.
Under the Act, foreign financial institutions will face five types of sanctions, out of a menu of ten options. These could include prohibitions on obtaining credit from US banks or conducting FX transactions subject to US jurisdiction, among others. (previously covered here)
Two years after the date a financial institution is included in a report, all of the ten sanctions options must be imposed, unless the financial institution is excluded from the next report.
Nicholas Turner, Of Counsel at Steptoe & Johnson in Hong Kong, highlights that the FAQs clarify that the ‘significant transaction’ must take place after 14 October for a financial institution to be named in the next report, and that the Treasury Department will reach out to a foreign financial institution to inquire about its conduct before identifying it in a report to Congress.
China’s Ministry of Foreign Affairs has vowed to respond by enacting countermeasures “to protect its sovereignty and national interest, and to safeguard the legal rights and interest of Chinese companies and related personnel.”
“The US’ ‘sanctions’ will not create an obligation for financial institutions under Hong Kong law,” said a Hong Kong government spokesman. “Our financial institutions and our financial system as a whole are robust and resilient. They will continue to operate normally and smoothly despite any undue pressure from the US.”
For more information, read Steptoe & Johnson’s blog post here.